Visa Inc. has announced this week that it is replacing its V.me digital wallet with Visa Checkout. Checkout has launched immediately in the US, Canada and Australia with a number of leading retailers and 180 financial institutions supporting. This is something of a surprise bearing in mind that V.me was only launched in 2012. So why has Visa dispensed so rapidly with V.me and what does the change mean for retailers, payment processors and consumers? (Note Visa Europe is continuing to invest in and promote V.me in Europe).
At first sight, the differences between V.me and Visa Checkout seem subtle – indeed it could be it seen as being purely a rebranding – which it is, and significantly so (read on as to why). Look a bit more deeply and the potential implications of the changes and the reasoning behind them indicate something much more significant.
The first thing to note is that Visa Checkout is not a wallet. The experience is much more akin to Amazon 1-Click with a simple login and payment button embedded in the merchant’s site or app. Has Visa come to the conclusion that the concept of digital wallets is one that consumers don’t really understand and cannot be bothered with? If they have, and more importantly if they are right, there are significant implications for the offerings of the other card companies and the many mobile payment schemes that base their consumer proposition around the concept of a “wallet”. It has long been accepted wisdom that the wallet is the cornerstone of the customer digital and mobile payment experience. Could consumer disinterest to date be something to do with the idea of the wallet being a barrier rather than an enabler?
The second significant point is that Visa doesn’t appear to be making any money out of Checkout. Merchant Service Fees (the commissions paid by retailers on every card transaction that provide the revenue for the acquirers, the card issuing banks and the card scheme operators) are not being increased for transactions using Checkout. What’s more, a Checkout account can be liked to a MasterCard, Amex or other card. Is Visa.inc just doing this out of philanthropic instinct? Has it invested in developing the service and taken all the trouble to get the banks and retailers on board to equally help itself and its direct competitors? This would seem unlikely. We suspect there are at least two reasons why Visa will have developed a business case for Visa checkout that does not require it to charge merchants a transaction fee for use of the service.
The first of these again comes back to user experience. One of the critical revenue drivers in e-commerce is conversion. The payment experience is critical to this. If it is difficult or requires the customer to register or enter too much information the customer is less likely to complete the transaction. Amazon, Apple and PayPal have known this for years, which is why it is so easy to buy stuff using 1-click and iTunes and why we as consumers return so readily to those retailers who have got it right. As commerce moves increasingly to mobile this becomes far more critical. You really want to minimise the amount of data that you need to input to buy something on a mobile screen. Based on comScore data, Visa processed of the order of $110 billion worth of e-commerce transactions just in the US in 2013 (excluding online travel purchases). Every percentage point increase in this resulting from reduced cart abandonment equates to an additional billion dollars processed by Visa. Yes other card holders will also experience an uplift but hey –so what – particularly when the brand that the consumer sees when they make the transaction is Visa, rather than the brand on the card.
The other rationale is probably competitive defence. PayPal, Amazon and possibly Apple (based on returning recent speculation that it will launch a payment service based on the millions of cards it has stored in iTunes) are a potential competitive threat to Visa. By getting in now and by not increasing the Merchant Service Fee, Visa makes its service considerably more attractive for Merchants than its competitors. PayPal’s transaction fees tend to be higher than card fees so this could put pressure on them and erode revenues. Furthermore if Amazon, Apple or anyone else can’t charge merchants incremental transaction fees and remain competitive, what is their incentive to move into the processing market?
Now the rebrand bit. V.me is a branding agency’s brand. It is the kind of brand that makes a potentially rather dull financial services company look and feel a bit more youthful and, well – digital. Visa Checkout is not. You could say it is dull and unimaginative – but, and this is a very important but, it does what it says. When you see a Visa Checkout button at the bottom of a shopping cart page you know exactly what it is for. It all comes back to simplifying and integrating the complete customer proposition and user experience with the clear aim of driving checkout conversion.
So what is the down side? Well the most obvious risk is security and consumer perception of security. Having payment details protected by nothing more than a user name and six character password seems almost reckless. But then PayPal have managed it for years and I’m sure Visa have done their homework on this. They are offering techniques including device fingerprinting and network analytics scoring to protect against fraud. Whether consumers are happy with it, only time will tell. And who knows, integration of Apple Touch ID or similar authentication technologies may soon provide a better alternative to the password without degrading the user experience.
The one other critical thing that Visa will need to do to ensure Checkout is to be truly successful, is to carry out a very effective and sustained consumer communications campaign to raise awareness, explain and persuade consumers and merchants. The Visa inc. press release promises a multi-million dollar awareness campaign across digital and social media with TV following later in the year. If they don’t get this right, Checkout may not last any longer than its predecessor.
So to sum up, this is looks like a smart move by Visa inc. The service concept itself is by no means original, but it is recognition of the fact that a simple proposition that puts customer experience first has significant revenue generating and competitive potential.